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Australia’s property market fades - 14 July 2011

A recent report in the Financial Times has suggested that property in Australia is starting to fade as the withdrawal of the government’s stimulus package for first-time buyers and high interest rates contribute to stagnating prices.

Until recently there have been large annual rises in the Australian property market – rises the likes of which few property markets in the developed world have been able to sustain. According to research by RP Data, a property research group, over a ten-year period of time every year house prices nationwide rose an average 7.8%. Low unemployment rates, a strong banking sector and short-term cash incentives for first-time buyers combined with a growing population all contributed to this strong performance.

However, the summer of 2010-11 in Australia saw large-scale devastation from floods and cyclones in not just Sydney, but also the Sunshine and Gold coasts of Queensland. The destruction caused has seriously affected the confidence of homeowners, particularly those that aren’t involved in booming mine and resource project construction parts of the economy.

Alongside the damage caused by a summer of harsh weather, the Australian dollar is currently trading at its highest level since 1983, which is affecting the number of expat and overseas buyers coming into the market. On the flipside, the strength of the currency has encouraged overseas owners to sell as a loss on paper can be turned into a profit when converted into their home currency.
The Australian property market is dominated by variable rate mortgages and so interest rates that have been rising since late 2009 are also affecting the strength of this market. It is getting more difficult for people to get the money they need from banks that are not as accommodating as they once were – perhaps because house prices are dropping.

As consumer confidence is weak, the central bank warned last week that the Australian housing market was ‘subdued’, with lower than average auction clearance rages, fragile housing finance growth and fewer building approvals.


 


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